In a 1939 House of Commons speech, Britain’s Winston Churchill called Russian foreign policy, “a riddle, wrapped in a mystery, inside an enigma.” The same could be said to describe the current new business jet market. Despite the longest bull run in stock market history, some of the lowest unemployment numbers on record, and strong consumer spending in both the United States and Europe—markets that collectively comprise three-quarters of the global market for new corporate jets—new jet sales numbers have not reflected this prosperity.
In 2008, cruising on the contrails of a pre-crash market that saw the Dow Jones Industrial Average peak just above 14,000 in late 2007, OEMs delivered 1,313 new business jets; last calendar year, with the Dow finishing just below 25,000, just 677 new jets were delivered, according to the General Aviation Manufacturers Association (GAMA). (For the first half of this year deliveries stood at just 296 compared to the same number in 2017.) This, despite the fact that used jet inventories have tightened to the equivalent of less than 9 percent of the in-service fleet, the U.S. corporate tax rate has been slashed, and accelerated depreciation has been expanded.
The long-presumed sales model, that new jet sales follow the stock market and/or corporate earnings, has been broken for the better part of the last two decades, with new jet sales largely frozen in the range between 660 and 760 over the last 10 years. If this market were a movie it might very well be titled On Stagnant Pond. The reasons for this stagnation are myriad. The growth of the Asian business jet market did not materialize as quickly as initially forecast, OEMs were slow to bring certain new products to market, and pure fractional ownership—a traditional large driver of OEM sales—began to fall from customer favor. But beyond all these factors is a fundamental shift in the way consumers view business jets and business jet travel—increasingly as a service and less of an asset class.
While new jet sales have not improved in tandem with the economy, the charter market has grown, particularly the large-cabin market. VistaJet chairman Thomas Flohr noted in May 2018 that the global air charter market grew by 5 percent in 2017 and aircraft utilization has returned to levels not seen since the 2008 recession.
“The number of charter flight hours is now at its highest level since 2008,” he said.
VistaJet, which operates an all-Bombardier fleet of super-midsize and large-cabin business jets, is one of a growing number of membership and charter companies reporting double-digit annual growth in recent years. Of the top 25 U.S. business jet charter fleets, 20 reported adding aircraft to their fleets in 2016, and five of those collectively added 100 aircraft. But a deeper dive into those numbers reveals that 53 of those aircraft were added by Gama Aviation, the operator for membership program Wheels Up, and 20 by jet card/aircraft management program Jet Linx.
A report prepared by the consulting firm Wealth-X for VistaJet earlier this year confirms what sellers of high-ticket items have long-suspected: younger high-net-worth individuals tend not to buy aircraft until they have achieved billionaire status and then only when they are older. And even when the charter market dips, as it did this past July, large-cabin aircraft seem to be resilient. According to Argus, the large-cabin charter market grew by 11.4 percent in July even as other sectors took a pause.
Still, even with this perceived ownership aversion, there are positive indicators for the new jet market. Four of the “Big Five” OEMs—Bombardier, Dassault, Gulfstream, and Textron—have genuinely new—not just refreshed—products in the pipeline aimed at the super-midsize to large-cabin markets, and the rational assumption is that these new products will prove sufficiently compelling—in terms of fuel-efficient engines, advanced avionics, more comfortable cabins with greater connectivity, and overall less burdensome maintenance—to move new jet sales off the dime.
And further down the food chain, new and disruptive smaller models from Cirrus, Honda, and Pilatus are creating new categories that could further stimulate sales. This, combined with the recent culling of the available used fleet that is less than 20 years old, should theoretically brighten the prospect for new jet sales, although residual values of many recent used models remain depressed as to overall flight hours, which have not kept pace with the overall fleet growth in the years since 9-11. Access to new and more efficient aircraft may stimulate higher utilization rates. For those willing to buy, there is certainly no shortage of choices. The larger question that looms is: Are new models compelling enough to persuade reluctant buyers to “pull the trigger”?